New study shows ObamaCare will add $340 billion to deficit in first decade

posted at 10:26 am on April 10, 2012 by Ed Morrissey

When passing and signing ObamaCare into law, Democrats — including most prominently Barack Obama — insisted that the bill would not inflate already-exploding deficits. In fact, they claimed, the bill would save money in the first ten years, which was accomplished by a rather transparent staging of taxes and benefits that gave ObamaCare a few years of revenue before any significant outlays. However, a new study by a trustee for CMS shows that the bill will actually increase deficits by $340 billion in the first ten years, thanks in part to a little-known issue with the shell game ObamaCare plays with those funding mechanisms:

President Obama’s landmark health-care initiative, long touted as a means to control costs, will actually add more than $340 billion to the nation’s budget woes over the next decade, according to a new study by a Republican member of the board that oversees Medicare financing.

The study is set to be released Tuesday by Charles Blahous, a conservative policy analyst whom Obama approved in 2010 as the GOP trustee for Medicare and Social Security. His analysis challenges the conventional wisdom that the health-care law, which calls for an expensive expansion of coverage for the uninsured beginning in 2014, will nonetheless reduce deficits by raising taxes and cutting payments to Medicare providers.

The 2010 law does generate both savings and revenue. But much of that money will flow into the Medicare hospitalization trust fund — and, under law, the money must be used to pay years of additional benefits to those who are already insured. That means those savings would not be available to pay for expanding coverage for the uninsured.

“Does the health-care act worsen the deficit? The answer, I think, is clearly that it does,” Blahous, a senior research fellow at George Mason University’s Mercatus Center, said in an interview. “If one asserts that this law extends the solvency of Medicare, then one is affirming that this law adds to the deficit. Because the expansion of the Medicare trust fund and the creation of the new subsidies together create more spending than existed under prior law.”

Here’s a simple way to think of it: under law Medicare is permitted to spend any proceeds of savings in the Medicare HI program. If we cut $1 from Medicare HI spending in the near term, then an additional $1 is credited to the HI Trust Fund as a result. The Trust Fund thus lasts longer and its spending authority is expanded, permitting it to spend another $1 in a later year.

A core fiscal problem with the ACA is that the same $1 in Medicare savings that expands Medicare’s future spending authority by $1 is also assumed to finance the creation of a large new federal health program. Taken together, these two expansions of spending authorities – the new health program and Medicare’s solvency extension – far exceed the cost-savings in the legislation.

Many people understood this instinctively when the law was originally debated. They wondered how a law could simultaneously extend the solvency of Medicare, provide subsidized health coverage to 30 million new people, and also reduce the deficit. The answer is that it can’t. The cost-savings of the ACA are insufficient to both extend Medicare solvency and finance a new health program without adding enormously to the federal debt.

The government scorekeeping conventions now in wide use are useful and appropriate for many policy purposes, but unfortunately they do not account for this phenomenon. CBO is diligent in carefully noting that these scoring conventions, dating back to the 1985 Deficit Control Act, do not represent actual law. As CBO states, “CBO’s baseline incorporates the assumption that payments will continue to be made after the trust fund has been exhausted, although there is no legal authority to make such payments.” The scorekeeping convention thus ignores the additional spending authority created when the HI trust fund is extended as occurs under the ACA. Unfortunately, few people read or understand these critical disclosures.

As a result, much of the cost-savings attributed to the ACA is actually not net new savings, but rather substitutions for those required under previous law. Under previous law, Medicare payments either would have been suddenly cut in 2016, or lawmakers would have had to enact other Medicare cost-savings (indeed, perhaps much like those in the ACA). The difference is that under previous law this all would have happened without also creating an expensive new spending program.

This is a more detailed explanation of the “double counting” criticism that arose during the ObamaCare debate over its scoring. The purported savings from these reforms arguably come to $575 billion over ten years, which was used to fund the Medicaid expansion that Obama used to cover the uninsured. However, the same savings got applied to extending the life of the Medicare fund, which as Blahous notes, is impossible under the law. If the funds go to the Medicaid expansion, then Medicare will become insolvent in 2016 and drastic cuts in funding will occur. If it gets applied to the trust fund, then the federal government will have to spend other funds to expand Medicaid. It can’t be both, and as the Post notes, even the CBO acknowledged as much in its scoring.

What does the administration have to say in response? An OMB official told the Washington Post (without going on the record) that Blahous was using “new math” to undermine the credibility of Obama’s reforms, in an attempt “to refight the political battles of the past.” However, this isn’t about the past at all; it’s about the future of Medicare and the deficit. The White House response appears to fall into the Pelosiesque “we had to pass it to see what’s in it” category, with the addendum of “and now it’s too late to argue about it.” We’ll see if that’s true.

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The White house dismissed the study in a statement late Monday. Presidential assistant Jeanne Lambrew called the study “new math (that) fits the old pattern of mischaracterizations” about the health care law.

Only liberal Democrats are stupid enough to believe that the Buffet Rule would increase revenue. Congress ought to ask the States like California, New York or Illinois that have tried their own version of the buffet Rule how much additional revenue it brought in. The average… a 20% decrease in revenues.

I’m glad to see that the media did such a great job up scrutinizing Dems on the price tag.

I’m also glad to see that so many Republicans were too stupid to be able to stand in front of TV cameras to make this case. In the alternative, I’m glad to see that Republicans so bungled their stewardship of things between 2000 and 2006 that we ended up with such overwhelming Dem numbers in both the House and the Senate to pass this thing and to usher the way for Obama as president.

When will people recognize that “pie in the sky” crap coming out of the White House is NEVER what they report it to be?

I went out with a guy last week who honestly thinks that the money to pay for all this is “the government’s money” and after it comes out of our paychecks it doesn’t belong to us anymore. He also thinks its the government’s job to take care of us. Might I mention he’s a US History teacher in middle school.

For all you parents out there who don’t think your kids aren’t getting indoctrinated, guess again!

It is a near certainty the actuals will be far worse. It doesn’t matter though. Once Zero is re-elected he’ll have more ‘room’ – this is his last election and then then he’s going to be more interested in ‘transmitting information’ to Vladamir, Hugo, Mahmoud, and pals.

Maybe a leftist retard not bright enough to know when humanity figured out when earth was round, throwing flat earth into the thread in a lame attempt to deflect from the issue at hand. The cost, and poli sci retards attempts at deflection by declaring the cost, “new math.”

Really, sport. Flat Earth is soooo 600BC. Which is probably why you, nor the trash you associate with, has figure that out.

Speaking of liberal positions on tax policy, the WSJ has an interesting editorial on the correlation of capital-gains tax rates and the revenue they generate.

Surprise, when rates are reduced, revenue pours in. The problem is that liberals then say, “Hey, if those gains had been subject to higher rates, we’d have had so much more tax revenue.”

Liberals never seem to realize that taxpayers in most cases are under no legal requirement to realize and recognize capital gains. According to liberals, taxpayers would still realize and recognize their capital gains in higher tax environments.

Wow – shocking analysis from the Hoover Institute – in partnership with something called ‘Obamacare Watch’.
What’s next – a study on horizons from the Flat Earth Society?
verbaluce on April 10, 2012 at 10:43 AM

“So the maples formed a union
And demanded equal rights
‘The oaks are just too greedy
We will make them give us light’
Now there’s no more oak oppression
For they passed a noble law
And the trees are all kept equal
By hatchet, axe and saw.”

I think BobMbx has Obama’s math right. Unfortunately “free” equals Obama stash which equals taxpayer. I wonder if the freeloaders understand that the government has no money of their own or they just don’t care?

and your opinion about the other things he wants you to understand, but you likely can’t?

[Blahous]’s assuming that Medicare’s deficits will automatically go away. Therefore, the roughly $500 billion in Medicare savings that Obama used to help cover the uninsured is money that Blahous assumes the government wouldn’t have spent anyway. Without the health-care law, in other words, we would have had Medicare cuts but no new spending on the uninsured. Now we have the Medicare cuts and new spending on the uninsured. Therefore, the new spending in the law counts toward increasing the deficit, but the spending cuts don’t count toward reducing it.

That is a completely bizarre assumption. It’s not an assumption that any scoring agency ever applies in other situations. We assume that, in the absence of action, Congress will keep paying Medicare benefits. That’s why we have all these projections of future deficits. If Blahous’s assumptions are right, then we don’t really have an entitlement problem at all. Medicare can’t exceed its trust fund, so problem solved! You know how Paul Ryan has been stalking the halls of Congress with disaster-movie music in the backdrop, warning that we’re about to become Greece? He should relax! (Also, Blahous’s methodology would show that Ryan’s budget looks way worse, too.)

taking pride in your ignorance is par for the course here, but doesn’t your inability to engage with complex issues bother you a wee bit?

sesquipedalian on April 10, 2012 at 12:29 PM

Translation= See if you can find the pea under one of the shells. In order to understand complex issues, one has to believe all the premises as laid out. Chait makes base claims which aren’t verifiable. Waste of time. Lest you accuse us of timidity, I’ll be glad to point them out. Will be gone for a few hours.

Actually, chumpette, private roads are built for less than government built roads. Thanks for playing, though.

Now be a good little tool and go back to pretending that this thread is based on a false premise, because you read it in the New York Times with the rest of the chumps who think it was only recently humanity discovered that the world is round.

The Obama administration is emphasizing “fairness” over deficit reduction in its renewed pitch for the “Buffett rule” ahead of next week’s scheduled Senate vote.

Introducing a minimum 30 percent income tax on millionaires “was never our plan to bring the deficit down and get the debt under control,” Jason Furman, the principal deputy director of the White House National Economic Council, told reporters on a conference call Monday afternoon.

Obama campaign manager Jim Messina called on Romney to release additional tax filings, saying, “The Buffett rule will help make our system reflect our values as all Americans play by the same rules, do their fair share and get a shot at success.”

how could they not be verifiable? they are laid out in the original study!

does blahous count medicare cuts under o-care as savings or not? if not, why? if you have no good answer to that, you must concede that the study morrissey is touting uncritically is based on bogus math.

very funny. did you read the blahous study or are you blindly swallowing what ed says about him?

why does the author not count medicare cuts as savings? do you even care, or is it not just another case of promoting every bit of information that seems to confirm your preexisting beliefs, without any concern for its validity?

340 billion over 10 years? That seems low. If the SCOTUS upholds it and we keep it I’m willing to lay a wager that we easily clear 340 billion in costs on this program above and beyond the income it received from taxespenalties taxes but not taxes but sort of taxes because we can do taxes but not really taxes because it’s not taxes while it’s taxes…. I think that’s the Government’s argument before SCOTUS.

Anyhow… is there anyone out there silly enough to want to bet that a government program will come in on time and under budget?

sesquipedalian, I think I understand your and Chait’s source of confusion:

… Blahous assumes the government wouldn’t have spent anyway

This statement is not true. Government may have continued spending anyway, but those expenditures would have to be authorized by congress and WOULD ADD TO THE DEFICIT. Blahous’ point is that circumventing that authorization does not circumvent adding to the deficit.

An example: You have $10 in the bank and you earn $1 a day . You spend $3 a day on a small combo at Burger King. This means you have a deficit of $2 a day. After 5 days, your “fund” is out of money. But you decide to spend $6 a day on a small combo AND a happy meal at Mcdonald’s instead. You claim you are “saving” $3 a day on Burger King, so this “offsets” the increased McDonald’s spending. Fact, your net deficit went from $2 to $5.

This is not difficult to understand.

Without the health-care law, in other words, we would have had Medicare cuts but no new spending on the uninsured

Um, yes. You and Chait seem to disagree with this assertion, when it is obviously true. This is why it’s called an “unfunded liability”. When money runs out, there is no auto-magical new spending. For an object lesson, spend more than your entire paycheck until your savings is gone. Then see if you can continue spending more than your paycheck, or if you have to “cut” spending. Then see if you can start new expenditures.

very funny. did you read the blahous study or are you blindly swallowing what ed says about him?

why does the author not count medicare cuts as savings? do you even care, or is it not just another case of promoting every bit of information that seems to confirm your preexisting beliefs, without any concern for its validity?

sesquipedalian on April 10, 2012 at 12:59 PM

Please point out in my posts where I reference this study or comment on its validity, thanks.

I only referenced my incredulity that there are simpletons that accept the premise that Obamacare saves money, and useful idiots like Chait who advance that premise.